Multibillion Loss for GMAC
GMAC Financial Services announced $2.48 billion in second-quarter 2008 losses, fueled by a major decline in the values of used trucks and sport utility vehicles.
The second-quarter loss is greater than GMAC’s losses for the entirety of last year, and is in striking contrast to the company’s $293 million profit for the same quarter a year ago.
GMAC Chief Financial Officer Robert Hull said the disappointing results stem from the turbulent credit and housing industries and a weak U.S. economy, combined with a decline in used vehicle prices and soaring fuel costs.
“This is the perfect storm for our business and we see no signs of it blowing over," said Hull.
Detroit-based General Motors Corp. still holds a large minority of GMAC, a stake that is likely to pull down General Motors’ second-quarter results, due Friday.
As a result of losses from asset sales, losses at GMAC's mortgage lending division, ResCap, grew to $1.86 billion from $254 million, while GMAC's automotive finance division posted losses of $717 million. The loss included a $716 million impairment charge resulting from lower used vehicle residual values, especially related to SUVs, GMAC said.
According to Rod Lache of Deutsche Bank, the impairment charge would have been even higher had GM not made $1.5 billion in leasing support payments. Lache expects GM’s second-quarter report to include a $1.2 billion loss related to GMAC, along with the $1.5 billion charge.
Ratings organization Standard & Poor's cut its ratings for GMAC, along with all of the Detroit-based automakers and their respective finance arms, to "B-" from "B," in light of growing losses at the automakers and the continued decline of the U.S. automotive market in general. Both ratings are considered "junk" status.
To counter lease-related losses, Hull said GMAC is taking a number of steps, including cutting the volume of new leases in the United States and establishing a program encouraging customers to keep their vehicles once their leases expire.
GMAC also eliminated leasing incentives in Canada at the end of July. Meanwhile, GM told its dealers this week that it would continue U.S. leasing incentives in August, despite the tough market conditions.
William Muir, president of GMAC Financial Services, said leases accounted for about 18 percent of GM sales during the first six months of 2008, but GMAC expects that percentage to fall by half in the "very near term."
Published on August 13, 2008
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